Kedaara Capital in talks to buy Indian School Finance

Neeraj Sharma, CEO of Indian School Finance Co. Founded in 2008, ISFC lends to private schools, affordable schools, vocational institutes and coaching classes to help them build infrastructure.

Mumbai: Private equity fund Kedaara Capital Investment Managers Ltd is in talks to acquire a majority stake in Indian School Finance Co. Pvt. Ltd (ISFC), a Hyderabad-based non-banking financial company (NBFC) that lends to companies in the education sector, said two people aware of the development.

Kedaara plans to invest about $50 million in two tranches and acquire controlling stake from existing investors and promoters, the first person cited above said, on condition of anonymity. IFSC has Grey Matters Capital and Caspian Impact Advisors as investors. Deloitte advised ISFC to find a new investor.

ISFC is in discussions to raise around $30-35 million (around Rs200-230 crore) from PE investors, Mint reported in November.

“Kedaara is in a serious discussion to acquire ISFC after they backed out from talks for investment in another NBFC Varthana,” said the second person, also on condition of anonymity.

ChrysCapital Advisors LLP, the largest home-grown private equity (PE) fund, is in advanced talks to buy a significant minority stake in Varthana, the Bengaluru-based NBFC which lends to affordable private schools, Mint reported on Wednesday.

An email requesting comment sent to Neeraj Sharma, chief executive officer and managing director of ISFC, went unanswered, while Manish Kejriwal, managing partner of Kedaara Capital, was unavailable for comment.

Founded in 2008, ISFC lends to private schools, affordable schools, vocational institutes and coaching classes to help them build infrastructure. It has presence in 13 states, with offices in cities such as Hyderabad, Jaipur, Bengaluru, New Delhi, Pune, Nagpur and Trichy.

According to filings with the Registrar of Companies (RoC), ISFC’s gross loan portfolio stood at Rs285.26 crore as of 31 March 2017, with gross non-performing assets (NPA) of Rs4.14 crore. The company reported a profit of Rs4.56 crore in 2016-17.

Shiksha Finance, another NBFC focusing on school and student loans, had raised $2.5 million (Rs16 crore) through a mix of debt and equity from Michael & Susan Dell Foundation (MSDF) in September.

At a time when banks are tightening their purse strings with increasing bad loans, Indian NBFCs are growing their market shares. The total NBFC retail credit along with SME exposure stood at Rs6.2 trillion as on December 2016, according to a 2017 report by PwC India.

Kedaara already has a wide exposure to the NBFC sector through its investments in microfinance lender Spandana Sphoorty Financial Ltd and AU Small Finance Bank, a Rajasthan-based NBFC involved in vehicle financing, property-backed business loans and mortgages.

In April, a Kedaara Capital-led consortium including Ontario Teachers’ Pension Plan had invested $100 million Hyderabad-based Spandana Sphoorty Financial Ltd out of a total $270 million of funding, facilitating its exit from the corporate debt restructuring cell (CDR) after seven years. Last month, Spandana Sphoorty had raised another Rs 125 crore ($19.5 million) from Kedaara Capital and Canadian pension fund Ontario Teachers’ Pension Plan.

Kedaara was founded in 2011 by former Temasek Holdings Pte India head Manish Kejriwal, along with Sunish Sharma and Nishant Sharma, who were managing director and principal respectively of global PE firm General Atlantic in India.

The firm raised its debut fund of $540 million in 2013 and has made major investments in automobile component maker Bill Forge Pvt. Ltd, AU Small Finance Bank and Mahindra Logistics. Last year, Kedaara Capital raised $750 million for its second fund.

Besides Spandana and Au Financiers, other leading NBFCs including India Infoline Finance Ltd, Hero FinCorp Ltd, Home First Finance Co. Pvt. Ltd and Janalakshmi Financial Services Pvt. Ltd raised funding from PE investors last year.

“Coupled with lower cost, a focused approach on limited credit products and strong underlying risk management capabilities help NBFCs to not only underwrite credit to a targeted set of customers but also to control bad debts, making them one of the attractive sectors for PE funding,” said the PwC reportm, Fuelling NBFCs through private capital.